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Tech stocks have been experiencing a rough stretch in the market year-to-date, with the tech-heavy Nasdaq retreating nearly 20% since the beginning of 2022. With the Fed increasing borrowing rates, investors’ sentiment towards these high-flying tech stocks has significantly shifted.
Nonetheless, earnings season has arrived, and investors are laser-focused on quarterly results. On deck to report quarterly earnings today after the market closes is the big tech-player Alphabet (GOOGL - Free Report) .
Below, the chart illustrates the year-to-date performance of other familiar tech names – Microsoft (MSFT - Free Report) , Apple (AAPL - Free Report) , and Amazon (AMZN - Free Report) – while comparing the S&P 500 and the Zacks Computer – Software Industry.
Image Source: Zacks Investment Research
As we can see, Alphabet is currently the fourth-worst performer year-to-date. However, upon lengthening the timeframe to over the past year, GOOGL is outpacing the S&P 500 and only lagging behind Microsoft’s and Apple's share performance.
Image Source: Zacks Investment Research
So, while GOOGL may not be the best investment year-to-date, it has been one of the better investments in general over the past year. Let’s analyze critical metrics and estimates heading into its quarterly report.
Previous Stock Price Reactions
GOOGL shares react positively to EPS beats; the share price has increased by at least 1.5% following quarterly reports over the last six earnings releases. In fact, the most significant share price boost came from its previous quarterly report when shares increased 9.4% in value following the release.
Image Source: Zacks Investment Research
With all of the selling going on in the market over the last week, a positive EPS beat may not be enough to win over investors and propel shares upwards again. I think it’s beneficial for investors to heed caution going into any tech company’s earnings in the near term until we start to witness buyers stepping back up.
Key Metrics
A couple of key metrics that investors should keep their eyes on heading into the quarterly report include advertising and Google Cloud revenue. Advertisements are Google’s most significant source of income, and cloud computing is quickly becoming a critical aspect of technology and will be a crucial revenue source for the company moving forward.
Google’s advertising revenue saw a notable 42% increase from 2020 to 2021. In its latest quarterly report, the company stated that users are increasingly using more diverse devices to access its products and services, and in turn, boosting this line of business. Advertising revenue has been growing consistently throughout the last four quarters, but estimates forecast a decrease in this metric for the upcoming earnings report.
It is estimated that only a tiny fraction of the world’s data resides in the cloud, meaning most businesses and applications have yet to become cloud-based. GOOGL sees this rapidly changing throughout the future and is an area they are investing in heavily. Cloud revenue has been multiplying for the company; cloud revenue saw a 47% year-over-year increase from 2020 to 2021. Unlike other metrics, cloud revenue for GOOGL is forecasted to increase from the previous quarter.
Revenue & EPS Estimates
For the quarter, the Zacks Consensus EPS Estimate sits at $25.70, reflecting a decrease in earnings of 2.3% from the year-ago quarter. The Consensus Estimate Trend has modestly improved over the last 60 days, boosted by four positive estimate revisions from analysts. In total, six estimate revisions have come in over the previous 60 days.
Analysts are forecasting Google to rake in $56 billion in revenue for the quarter, a sizable 23% increase from the year-ago quarter. The high estimate sits at $57.8 billion, and the low estimate sits at $53.8 billion, both well above the year-ago quarter’s results.
Amazon
Pivoting away from Alphabet for a quick comparison, another big name in the market, Amazon (AMZN - Free Report) , is also on deck to report quarterly results this week. Over the last four quarterly reports, AMZN has an average EPS surprise in the triple-digits of 167%, and in its latest quarter, the e-commerce giant beat estimates handily by 613%.
Quarterly earnings are expected to decline 43% year-over-year, with two analysts downwardly revising their estimates over the last 60 days. Looking at sales, the Zacks Consensus Estimate has Amazon raking in $117 billion for the quarter, which is a notable 8% year-over-year expansion in the top line.
Year-to-date, Amazon shares are down nearly 17%. Additionally, AMZN is currently a Zacks Rank #3 (Hold) with an overall VGM Score of an A.
Amazon.com, Inc. Price, Consensus and EPS Surprise
Over the last year, the continuing shift from an offline to an online world has massively boosted the growth of its business, contributing to revenue growth, and I expect that this “digital shift” will continue to pay dividends for GOOGL in the future.
Additionally, with consumers increasingly using different ways to access its products and services, advertising revenue stands to benefit massively. However, margins on mobile ad revenue, the quickest growing way that people access Alphabet’s services, have generally been lower than those from a traditional desktop search. The company expects this mobile advertising trend to continue, affecting growth rates and putting pressure on its margins.
The company intends to invest heavily in operating and capital expenditures strategically across all aspects of its business, including Google Cloud. It is also planning on continuing its investments in land and buildings for data centers and offices to support the business's long-term growth.
All in all, GOOGL is a top-tier investment in my eyes. The company has full dedication to growing its business and providing shareholder value in the long term. Additionally, the company has a stellar track record of quarterly reports, missing EPS and sales expectations rarely.
Google’s Cloud business will be a top growth driver moving forward, and I expect this line of business to grow considerably as technology evolves and the world further embraces the digital shift. Due to current market conditions, I believe it could be beneficial for investors to heed caution and wait for the tide to shift back in their favor before considering buying shares. Alphabet is currently a Zacks Rank #3 (Hold) with an overall VGM score of an A.
Image: Bigstock
Is Alphabet (GOOGL) a Buy Heading Into Q1?
Tech stocks have been experiencing a rough stretch in the market year-to-date, with the tech-heavy Nasdaq retreating nearly 20% since the beginning of 2022. With the Fed increasing borrowing rates, investors’ sentiment towards these high-flying tech stocks has significantly shifted.
Nonetheless, earnings season has arrived, and investors are laser-focused on quarterly results. On deck to report quarterly earnings today after the market closes is the big tech-player Alphabet (GOOGL - Free Report) .
Below, the chart illustrates the year-to-date performance of other familiar tech names – Microsoft (MSFT - Free Report) , Apple (AAPL - Free Report) , and Amazon (AMZN - Free Report) – while comparing the S&P 500 and the Zacks Computer – Software Industry.
Image Source: Zacks Investment Research
As we can see, Alphabet is currently the fourth-worst performer year-to-date. However, upon lengthening the timeframe to over the past year, GOOGL is outpacing the S&P 500 and only lagging behind Microsoft’s and Apple's share performance.
Image Source: Zacks Investment Research
So, while GOOGL may not be the best investment year-to-date, it has been one of the better investments in general over the past year. Let’s analyze critical metrics and estimates heading into its quarterly report.
Previous Stock Price Reactions
GOOGL shares react positively to EPS beats; the share price has increased by at least 1.5% following quarterly reports over the last six earnings releases. In fact, the most significant share price boost came from its previous quarterly report when shares increased 9.4% in value following the release.
Image Source: Zacks Investment Research
With all of the selling going on in the market over the last week, a positive EPS beat may not be enough to win over investors and propel shares upwards again. I think it’s beneficial for investors to heed caution going into any tech company’s earnings in the near term until we start to witness buyers stepping back up.
Key Metrics
A couple of key metrics that investors should keep their eyes on heading into the quarterly report include advertising and Google Cloud revenue. Advertisements are Google’s most significant source of income, and cloud computing is quickly becoming a critical aspect of technology and will be a crucial revenue source for the company moving forward.
Google’s advertising revenue saw a notable 42% increase from 2020 to 2021. In its latest quarterly report, the company stated that users are increasingly using more diverse devices to access its products and services, and in turn, boosting this line of business. Advertising revenue has been growing consistently throughout the last four quarters, but estimates forecast a decrease in this metric for the upcoming earnings report.
It is estimated that only a tiny fraction of the world’s data resides in the cloud, meaning most businesses and applications have yet to become cloud-based. GOOGL sees this rapidly changing throughout the future and is an area they are investing in heavily. Cloud revenue has been multiplying for the company; cloud revenue saw a 47% year-over-year increase from 2020 to 2021. Unlike other metrics, cloud revenue for GOOGL is forecasted to increase from the previous quarter.
Revenue & EPS Estimates
For the quarter, the Zacks Consensus EPS Estimate sits at $25.70, reflecting a decrease in earnings of 2.3% from the year-ago quarter. The Consensus Estimate Trend has modestly improved over the last 60 days, boosted by four positive estimate revisions from analysts. In total, six estimate revisions have come in over the previous 60 days.
Analysts are forecasting Google to rake in $56 billion in revenue for the quarter, a sizable 23% increase from the year-ago quarter. The high estimate sits at $57.8 billion, and the low estimate sits at $53.8 billion, both well above the year-ago quarter’s results.
Amazon
Pivoting away from Alphabet for a quick comparison, another big name in the market, Amazon (AMZN - Free Report) , is also on deck to report quarterly results this week. Over the last four quarterly reports, AMZN has an average EPS surprise in the triple-digits of 167%, and in its latest quarter, the e-commerce giant beat estimates handily by 613%.
Quarterly earnings are expected to decline 43% year-over-year, with two analysts downwardly revising their estimates over the last 60 days. Looking at sales, the Zacks Consensus Estimate has Amazon raking in $117 billion for the quarter, which is a notable 8% year-over-year expansion in the top line.
Year-to-date, Amazon shares are down nearly 17%. Additionally, AMZN is currently a Zacks Rank #3 (Hold) with an overall VGM Score of an A.
Amazon.com, Inc. Price, Consensus and EPS Surprise
Amazon.com, Inc. price-consensus-eps-surprise-chart | Amazon.com, Inc. Quote
Bottom Line
Over the last year, the continuing shift from an offline to an online world has massively boosted the growth of its business, contributing to revenue growth, and I expect that this “digital shift” will continue to pay dividends for GOOGL in the future.
Additionally, with consumers increasingly using different ways to access its products and services, advertising revenue stands to benefit massively. However, margins on mobile ad revenue, the quickest growing way that people access Alphabet’s services, have generally been lower than those from a traditional desktop search. The company expects this mobile advertising trend to continue, affecting growth rates and putting pressure on its margins.
The company intends to invest heavily in operating and capital expenditures strategically across all aspects of its business, including Google Cloud. It is also planning on continuing its investments in land and buildings for data centers and offices to support the business's long-term growth.
All in all, GOOGL is a top-tier investment in my eyes. The company has full dedication to growing its business and providing shareholder value in the long term. Additionally, the company has a stellar track record of quarterly reports, missing EPS and sales expectations rarely.
Google’s Cloud business will be a top growth driver moving forward, and I expect this line of business to grow considerably as technology evolves and the world further embraces the digital shift. Due to current market conditions, I believe it could be beneficial for investors to heed caution and wait for the tide to shift back in their favor before considering buying shares. Alphabet is currently a Zacks Rank #3 (Hold) with an overall VGM score of an A.
Alphabet Inc. Price, Consensus and EPS Surprise
Alphabet Inc. price-consensus-eps-surprise-chart | Alphabet Inc. Quote